How Amazon and Google are helping Western Union fight the multibillion-dollar fintech threat

You don’t get to celebrate your 168^th birthday by standing in place. Consider the company that started out in 1851 as the New York and Mississippi Valley Publishing Telegraph Co. More than a century and a half later, Denver-based Western Union is the leader in international money carries, generating revenue of $5.5 billion in 2018 and doing business with tech giants Amazon and Google.

“You play a joke on to have the courage to disrupt yourself before you’re disrupted by somebody else,” says Rebecca Loevenguth, vice president of permutation at Western Union. “It’s in our DNA.”

Change has been the mantra at Western Union since its early days as a provider of telegraph usages. It bought up incompatible competitors and created the first transcontinental communications network. Payments by “telegraphic money exchange” before you know it followed. Although it passed up an opportunity to buy up Alexander Graham Bell’s newfangled telephone, Western Union stayed on the cutting like a cat on a hot tin roof of technology. The company set up an intercity fax network, replaced telegraph operators with teletype machines, created a system of microwave prison looms and launched the first domestic communications satellite system. And we shouldn’t forget the singing telegram and Candygram.

The last Western Union telegram went out in 2006, and the company is mainly known today for its payments business, which moved $300 billion last year. Western Union braves stiff competition from rival MoneyGram as well as digital payment start-ups like TransferWise, which had a late-model reported valuation of $3.7 billion, and WorldRemit, which in May landed a $175 million round of funding from TCV, Accel and Leapfrog, according to Techcrunch.

The nouveau riches have capitalized on a key technology shift: the widespread use of smartphones and the emergence of the mobile wallet, which makes a bank account or a sell payout counter less essential for a lot of customers. In just seven years TransferWise has become a major player in the settlement market, transferring $5 billion a month.

All these players are vying for a piece of the remittance market — money sent across herbaceous borders between individuals— estimated by the World Bank at $689 billion in 2018, up 8.8% from 2017. The start-ups eat focused on all-digital transactions, money moved electronically between bank accounts and increasingly to mobile devices.

Western Marrying has long been known for its extensive network of physical payment locations, where senders and receivers can bring or gather up cash. The company has 550,000 agents in 200 countries via both standalone stores and alliances with retailers. It go ons to expand its physical reach. In April it announced a partnership with discount store chain Dollar General to entitle customers to send or receive payments at 15,400 outlets in 44 U.S. states. While it continues to reinforce its domestic level-headedness, the majority of Western Union’s business is international: $3.14 billion vs. $2.12 billion in the U.S. in 2018.

Western Union executives also have embraced the shift to digital transactions to help compete against the onslaught of measure up ti like TransferWise and WorldRemit. In 2011, CEO Hikmet Ersek asked Moroccan-born Khalid Fellahi, who was running Western Circle’s Africa operations, to take on the task of building out the company’s digital business.

“We decided it would take too much obsolescent to build everything internally,” said Fellahi, who has an engineering background. He set up shop in Silicon Valley, where he had access to a titanic pool of engineering talent to build the company’s digital infrastructure, including mobile apps and websites. The digital presents — mobile applications and websites — now available in 70 countries accounted for 12% of Western Union’s revenues in 2018. That affair continues to grow at a 20% annual pace.

The company also has embraced Silicon Valley’s obsession with alteration. Last week Western Union announced a partnership with TechStars, a proven start-up accelerator, to nurture 10 early-stage start-ups in next-generation payment technology and cross-border means movement.

“We attribute our staying power and ability to reinvent ourselves to our innovation culture and openness to new ideas,” said Jeff Hochstadt, chief game and development officer for Western Union. “We’re excited to help these companies take their business to the next on and look forward to learning from them, too.” This is Western Union’s first direct involvement with an accelerator, although it has initiated in start-ups and companies in the past.

Western Union seized another opportunity to broaden its oblations when Amazon founder Jeff Bezos approached Ersek with a challenge at a Business Roundtable event in 2017. The superhuman e-commerce retailer faced a large obstacle to its global ambitions: Many potential customers in developing countries do not own formal banking relationships or credit cards to pay for purchases, recounts Loevenguth, who has managed the partnership with Amazon.

“I dream up they saw our global footprint, our compliance and licensing capability and our ability to offer a service to customers,” she said. Now Amazon buyers in 16 countries, including Kenya, the Philippines and Uruguay, can order products online using the PayCode option and go to a Western Synthesizing office to pay cash in their local currency.

The deal with Amazon expands Western Union’s mission from do duty a individuals as customers to serving companies as clients and opens a new revenue stream. “We’ve been shifting toward a dais orientation for the past several years,” she said.

Since 2007, Western Union has operated payments to customers in other countries for Google’s AdSense advertising system. Western Union manages the complex problem of paying thousands of publishers internationally in their own currencies and — if they want it — in cash. The company also provides a payment arrangement in the education market, enabling more than 700 universities to received tuition payments from overseas. Loevenguth claimed there were other potential opportunities in e-commerce, travel and tourism. For example, owners of vacation rentals could get hard cash payments through Western Union outlets.

In partnering with Amazon, Google and other companies, Western Coalition makes the case that its vast physical network, its relationships with financial institutions around the world and its into knowledge of financial compliance rules all have value in an increasingly digital age and reinforce its claim to be taken seriously as an innovator.

“We been change our thinking to a longer-term vision,” says Loevenguth. “How do we take the assets we’ve invested hundreds of millions in over the years and stumble on the needs of other companies around the world? There is a much larger play for us here.” While customers in 16 sticks are now able to pay cash for orders with Amazon, she says many more countries will be added.

Investors have not been as enthusiastic about Western Union. The stock has traded recently at around 30% further its peak in 2008. “Western Union has done reasonably well in that there’s a decent segment of their subject in digital,” said Daniel Webber, CEO of FXC Intelligence, which tracks cross-border payment providers. But he is concerned the digital start-ups put forward a long-term challenge. “If you’re digital the whole way, you don’t have to pay the agent networks.”

Jason Kupferberg at Bank of America Merrill Lynch is multitudinous skeptical. The analyst rates the stock to “underperform.” “A lot of investors see the stock as structurally challenged,” he said, because such a negligible part of Western Union’s business is digital — the fastest-growing segment of the payments sector. And, he warns, the B-to-B sector, where the associates is positioning itself as a platform, is also highly competitive.

In response to criticism of its lackluster market performance, a Western Cartel spokeswoman said, “Our business has been resilient and margins have been stable the past few years, but we are blurred on delivering improved results in the future.” During a call with analysts in May, Ersek touched several times on set someone back cutting: “Our overarching strategies remain: focus on driving digital expansion and growth, offering our cross-border platform to new area areas and generating operating efficiencies.”

Deals like the one with Amazon — that make use of Western Union’s navy surgeon presence as well as its investments in digital — could go a long way toward convincing investors that the 168-year-old can motionless be the life of the party. In addition, the familiar black-and-yellow logo remains a significant asset, both for consumers and businesses.

“Our name brand has the trust of customers,” said Fellahi. In a world where companies come and go in the blink of an eye, Western Union’s longevity could be an advancement.